I'm an associate editor at Forbes, part of the team responsible for our signature issues: The Forbes 400, Global Billionaires and America's Richest Families. As a writer, I cover these wealthy business builders as well as other entrepreneurs. Before Forbes, I also reported on entrepreneurs for Inc. magazine and attended Syracuse University's S.I. Newhouse School of Public Communications.

Kraft A Crafty Addition To An Investor's Shopping List

Check your pantry. Products from Kraft, maker of Oreo cookies and Ritz crackers, probably sit on every shelf. Kraft stock is something you may want to take a bite from too.

Kraft plans to split its business into an international snacks business and a North American grocery business. Why? The snacks business is growing quickly, with plans to continue expanding into crucial emerging markets. The grocery business, however, should see slower growth. Separating the two would allow the snacks business to grow faster still. The split will become official on Oct. 1, earlier than originally anticipated. Observers are bullish on the split successfully unlocking additional shareholder value.

“It should support higher stock prices for the individual businesses given what we view as the discount valuation on the combined entity,” says Stifel Nicolaus analyst Chris Growe.

Net income for the entire company was up more than 5% in the most recent quarter (and beat analysts’ expectations). That sent shares up 4% to $40.51 today.

Revenue, though, came in below expectations. A combination of a stronger dollar and a rise in raw-material costs hurt Kraft’s top-line performance. Total sales were $13.3 billion, less than the $14 billion expected by analysts.

Kraft did manage to pass off some of the increased product costs to consumers. Prices in the most recent quarter rose 4%. Volume dropped 0.6%.

All packaged food companies need to contend with this combination of a damaging dollar and rising costs. Only Kraft, though, saw price and volume improve in the first half of the year. Looks like the millions sunk into reinvestments over the past three years paid off. Marketing spending greatly picked up in these years, as did new product launches. S’more Jell-O pudding cups, anyone?

“Bottom line, there have been precious few U.S. food companies that have been able to navigate through this most recent price and input-cost volatility,” says Barclays analyst Andrew Lazar.

Now, Kraft aims to double-down. Investments will increase in the rest of 2012, as the company hopes to bolster for both the snacks business, which will be called Mondelez, and the grocery business. So far, Kraft has proven an ability to make this spending yield future gains.

As a whole, many analysts place a $44 a share value on the company. It competes with food companies like Kellogg, General Mills and H.J. Heinz. The new international snacks unit will see PepsiCo as a major challenger.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.